Chapter 1 - Auditing & Assurance Services Flashcards
todays information is…
more complex, demanded by remote users, demanded in a more timely manner, has far reaching consequences, and international reach
what is informational risk?
the risk that the information given by the client will be materially false or misleading
users demand…
an independent third party assessment of the info
an audit is..
an independent third party assessment of the info
what is business risk?
the risk that an entity will fail to meet stated business objectives
what did Bernie Madoff do?
ran a Fonzie scheme that used newer investors $$ to pay off older investors
what is a Ponzi scheme?
investing other people’s $$
assurer example
assurer is the authenticator at a pawn shop
Engagements relationships
assertive engagements include attestation engagements which include audit engagements
the goal of assurance services is to…
improve quality of information, or its context, for decision makers
examples of assurance services include…
XBRL reporting, information risk assessment, customer satisfaction surveys, internal audit assurance, fraud and illegal acts prevention, cyber risk audit and assurance
what is XBRL?
information format designed specifically for business reporting through “tagging” specific items. XBRL facilitates the collection, sumartization, and reporting of financial information so decision makers can use it
XBRL utilizes…
“tagging” specific items
XBRL facilitates the ___, ___, and ____ of financial info
collection, summary, and reporting
XBRL is ____ by the SEC
required
what are NFTs?
non-fungible tokens, basically any asset that is virtual
what is an attestation engagement?
any info that management produces that they want a 3rd party assurance for
in an attestation engagement, a practitioner assesses and reports on…
subject matter, or an secretion about subject matter that is the responsibility of another party
examples of financial attestation engagements (other than audit)
financial forecasts and projections, examination of Managements Discussions & Analysis (item 7 on 10K), pro forma financial information
where is Managements Discussions & Analysis found?
item 7 on 10K
what is pro forma financial information?
if a merger happened, it is adjusted projection of prior years financials
examples of non-financial attestation engagements
effectiveness of internal controls, environmental regulations compliance, and sustainability reporting engagements
ESG is…
an environmental, social, and governance board presented by IFRS
who is pushing ESG and why?
Blackrock, because they want younger investors to invest because of personal values
what is the annual report and who is it sent to?
10 K, sent to shareholders and is public
what types of financial statements are often more credible?
audited
audited financial statements are ________ credible than non audited
always (but not never) more
When was the SOX act created?
after Enron collapse
what does SOX clearly indicate about management?
management team is responsible for the financial reporting process and the financial statements
Section 302 of SOX states…
key company official must CERTIFY the financial statements
(SOX 302) management must sign a statement indicating that they have…
read the F/S, are not aware of any false or misleading statements (or any key omitted disclosers), and they believe that the F/S present and accurate picture of the companies financial state
Management signs that they believe that their company’s F/S present…
an accurate picture of their financial condition
Management must sign that they are unaware of…
any false or misleading statements (or omitted disclosers)
SOX section 302 exists for…
liability
with SOX 302, investors can…
hold someone accountable and make it easier to sue
ASB assertions are for what companies?
private
PCAOB assertions
presentation and discloser, existence and occurrence, rights and obligations, completeness, valuation and allocations
which PCAOB assertion: sending a confirmation for accounts receivable to a client
existence
which PCAOB assertion: for account receivable balances, auditor looks at the credit worthiness and past payment history of the client’s customers.
valuation and allocation
which PCAOB assertion: auditor looks at shipping dates for late sales
completeness
valuation only affects cash if…
foreign $$ is involved
confirmations are always which PCAOB assertion?
existence
included/excluded are always which PCAOB assertion?
completeness
professional skepticism refers to…
auditors questioning mindset towards representations made by management and evidential matter gathered
inquiry alone is…
NEVER ENOUGH
what does the auditor have to obtain in addition to inquiry?
sufficient corroborative evidence
unusual financial trends need…
investigation
documents are always checked for…
authenticity or possible alteration
after asking questions and getting answers, auditors…
verify the answers
must be skeptical because…
a potential conflict of interest must exist between the auditor and the client
how does management want to portray the company?
in the best possible light
auditors want to make sure that managements portrayal of the company is…
fair and accurate
5 steps in the Professional Judgement Process
- clarify the issues and objectives
- consider the possible alternatives
- gather and evaluate the relevant evidence
- reach an audit conclusion
- carefully document rationale for the professional judgement reached
first step in the Professional Judgement Process is…
clarify the issues and objectives
in the Professional Judgement Process, after you clarify the issues and objectives, you…
consider the possible alternatives
in the Professional Judgement Process, after considering the possible alternative, you…
gather and evaluate the relevant evidence
in the Professional Judgement Process, after gathering and evaluation evidence, you…
reach and audit conclusion
in the Professional Judgement Process, after reaching an audit conclusion, you…
carefully document rationale for the professional judgment reached
at the end of the Professional Judgement Process, you carefully document…
rationale for the professional judgement reached
examples of public accounting Assurance Services
F/S audit engagements, assurance engagements, attestation engagement, compilation, reviews
the three types of public accounting services are..
assurance services, tax services, and consulting/advisory services
in public accounting firm, a partner has ____ and can _____
equity ownership; can sign off
unlike a partner, a director…
cannot sign off or own equity
SOX prohibits services that…
causes you to audit your own work
professional service firms may provide tax services ( with some restrictions) and other non-prohibited services to audit clients if…
the audit committee approves them in advance
four types of auditors and audits
- financial
- operational
- compliance
- forensic
who are financial auditors?
external auditors and CPAs
who are operational auditors?
interna and gouvernent auditors/CIAs
who are compliance auditors?
internal and governmental auditors
who are forensic auditors?
fraud auditors/CFEs
what do financial audits do?
ensure that F/S are reliable
what does operation audits do?
improve operational ECONOMY and EFFICIENCY
operations audits improve operational…
economy and efficiency
what do compliance audits do?
ensure compliance with company and/or government rules and regulations
what does forensic audits do?
designed to investigate a crime and will often involve gathering evidence designed to convict a fraudster
forensic audits often involve…
gathering evidence to convict a fraudster
compliance audits ensure compliance with _____ and ____ rules and regulations
government, company